Study Of Municipal Bond Issues

This paper analyzes the necessity and feasibility of developing municipal bonds in China and points out the developing goal of municipal bonds market includes 3 aspects: (1) the primary bond market should emphasize low cost and timeliness; (2) the secondary bond market should emphasize high liquidity; (3) the whole bond market should emphasize stability. Basing on this goal, the bond market development needs to be divided into two phases: the initial phase and the improving and developing phase.With regard to the confirmation of bond issuing conditions, this paper argues that as an experiment, the scope of bond issuer can temporarily be limited within the Provinces, cities directly under the jurisdiction of the central government, and larger cities with advanced economy at present, and extended later. This paper chooses the fiscal income of local government, fiscal revenue per capita, GDP per capita and the coefficient of major projects guarantee capability as the variables to assess the possibility of debts issuing by local government. In addition, basing on the current administrative structure of Chinese government, this paper proposes that the guarantee for the repayment of principal and interests of municipal bonds issued by city government can be divided into 4 levels while the guarantee for municipal bonds issued bygovernments of Provincial level and cities directly under the jurisdiction of the central government can be divided into 3 levels. In this context, during the initial phase, it is inappropriate to differentiate the revenue-backed bonds with tax-supported bonds (general obligation) and it is better to raise the guarantee level to a proper extent. No matter if the project itself can generate operating revenue, the third level guarantee should be provided for the municipal bonds. During the improving and developing phase, the re-guarantee level will be gradually adjusted to normal level and differentiate the revenue-backed bonds with tax-supported bonds.This paper make use of credit risk model and debt control model of national level to introduce 2 methods to control the total volume of municipal bonds. In the second method, the paper states that the municipal bonds ratio should be limited within 12%, the yearly debt ratio should be limited within 0.6%, and the upper limit of dependency of municipal bonds should be 4.3%. In the meantime, this paper points out that municipal bonds is one kind of typical quasi-public goods. All investors have the right to purchase such kind of public debts. The best way to determine the qualification of buyers and the price of the bonds is through auction, in the next place through competitive underwriting. During the initial phase of municipal bonds market development, the municipal bonds that have the characteristics of low issuance volume andspecial issuance terms can take the underwriting approach. During the improving and developing phase of municipal bonds market development, it is better to take the auction approach, especially for those municipal bonds that have the characteristics of high issuance volume and standardized issuance terms. From the development perspective, the auction approach represents the trend of municipal bonds issuance. The issuer of municipal bonds can flexibly select the specific issuance approach according to the market conditions at that time.